Refer to the information for Morning Dove Company in E5-2. Morning Dove Companys owner, Sylvester, believes that

Question:

Refer to the information for Morning Dove Company in E5-2. Morning Dove Company’s owner, Sylvester, believes that he can sell 2,000 birdbaths during the month of April and has predicted a net operating income of $6,820 as shown in the following statement:
MORNING DOVE COMPANY
Income Statement
Expected for ........... 2,000 Units
Sales revenue (2,000 3 $25.00) ... $50,000
Less: Variable costs (2,000 3 $19.50) .. 39,000
(2,000 3 $5.50) ... $11,000
Less: Fixed costs ......... 4,180
Net operating income ....... $ 6,820

Required:
Explain to Sylvester why his prediction is incorrect. Be specific about his incorrect assumptions and give him as much detail as possible about what the accurate statement would show.

Contribution Margin
Contribution margin is an important element of cost volume profit analysis that managers carry out to assess the maximum number of units that are required to be at the breakeven point. Contribution margin is the profit before fixed cost and taxes...